Comerica Economic Weekly

Housing related data continues to be positive. The Case-Shiller 20-City House Price Index for December shows that almost all major metro areas tracked saw consistent gains in house prices at the end of 2012. The 20-city composite index was up 6.8 percent over the year ending in December. Among the 20 markets, only New York City was still down slightly for the year. New home sales for January were stronger than expected, gaining 15.6 percent to hit a 437,000 unit pace. The surge in new home sales reflects tightening existing home markets in most areas. February numbers will likely show some give back from the January surge. Pending home sales for January, a leading indicator for February sales, increased by 4.5 percent. Total construction spending eased by 2.1 percent in January, weighed down by private nonresidential projects.

Manufacturing indicators also continue to be positive. The ISM Manufacturing Index for February increased to 54.2 percent. Eight of the 10 index components were in expansion territory, including production and employment. Durable goods orders were soft at the headline level, falling by 5.2 percent in January. Both defense and nondefense aircraft orders were weak for the month. Core orders, nondefense capital goods excluding aircraft, were up 6.3 percent, boosted by gains in machinery orders.

Unemployment insurance claims for the week ending February 23 declined by 22,000 to hit 344,000. This level of claims is supportive of ongoing moderate job growth.

Gross domestic product for the fourth quarter of 2012 was revised up slightly. The initial estimate of -0.1 percent real GDP growth for 2012Q4 now reads +0.1 percent, an insignificant revision except for the optics. The negative sign is now gone, but it was still a weak quarter, dragged down by declining government spending and a weather-related hit to inventories.

Personal income in January fell by 3.6 percent following a surge in December. December personal income surged by 2.6 percent largely due to tax avoidance maneuvers as dividend payments were accelerated. In the January data we also see a big increase in social security tax payments which dragged down disposable (after tax) income. Despite the 4.0 percent decline in real disposable income in January, real consumer spending increased slightly by 0.1 percent. This is consistent with our expectations that there would not be a one-for-one decline in household spending as the tax load increased. Because of the gyrations in income over December and January, the personal saving rate has been in flux. In December, the saving rate increased from 4.0 to 6.4 percent. Then it decreased in January to 2.4 percent.

The preliminary data on auto sales for February looks good. Car sales will be close to a 15.3 million unit annual rate, a slight gain from January.